Lights Out Means Lost Sales

By Sarah E. Needleman On a recent morning, Frank Christopher arrived at the New York nightclub he co-owns to find its online reservation system wasn't working. He soon learned that a power outage had occurred the night before, costing the small business, called Smoke Jazz and Supper Club, an estimated $1,500 in revenue because customers couldn't order tickets."We forgot to put a backup power supply on it," says Mr. Frank. "We learned the hard way."Power outages are a common hindrance year-round, but especially in summer when excessive use of air conditioners strain electrical systems. Despite the potential damage these can cause businesses—from data and inventory losses to halted productivity and unfavorable working conditions—experts on emergency preparedness say many small companies avoid taking proactive measures."Most entrepreneurs are very positive. They're not thinking they will ever encounter disaster," says James Rivera, associate administrator for the Office of Disaster Assistance at the U.S. Small Business Administration in Washington. Some business owners also falsely assume that insurance providers or government agencies like the SBA can help them recover losses due to power outages, Mr. Rivera adds. But that may not be the case if insurance coverage isn't sufficient or if the economic impact of the power outage doesn't fall under the government's guidelines. The last time the SBA approved business loans for an outage-related emergency was four years ago this month when the lights went out in the Queens, N.Y., area for nine days. Eighteen loans were approved for a total of $1.5 million. A study from the Pace Energy and Climate Center at Pace University Law School, meanwhile, found that businesses suffered $111 million in damages resulting from the blackout.Between January and April of this year, 35 major power outages occurred in the U.S., mostly due to unusually severe weather conditions, up from just nine during the same period in 2000, according to the U.S. Department of Energy's Energy Information Administration. The number fluctuates each year, largely based on Mother Nature. In 2009, there were 44 major power outages between January and April. Due to increased reliance on high-tech items like electronic cash registers and alarm systems, businesses may be prone to experiencing more headaches these days when the power fails than in past outages, says Jim Owens, a spokesman for the Edison Electric Institute, a Washington association that represents investor-owned utilities nationwide.But the solution for preventing outage-related damages is often relatively simple and costs less than the potential losses they help to circumvent. For example, backup energy suppliers such as batteries and generators can typically keep electrical machinery operating long enough for a business owner to wrap up a project and safely shut their equipment down. "It's insurance," says George Pauli, owner of Great Embroidery LLC in Mesa, Ariz., of the batteries he has for two sewing machines he uses to stitch logos on up to 12 shirts at a time. He says about six power outages occur in his area a year, and before he invested roughly $700 in the back-up batteries, he lost about $120 worth of inventory every time—even when the outages lasted just a few minutes—because the machines' needles wouldn't resume exactly where they left off.For businesses looking to safeguard computers during a power outage, installing protective software on each unit may prevent data from getting destroyed. Richard Grebinger, vice president and co-owner of National Tax Consultants Inc., says the accounting firm is grateful it took this precaution three years ago. A storm knocked power out for five days at part of its Merrick, N.Y., office this past spring—its busiest season—but the loss of electricity didn't bring business to a screeching halt. The firm's computers remained intact and employees were able to move them to an area in the building that wasn't affected by the storm. Mr. Grebinger estimates that the protective software saved the firm "tens of thousands of dollars" in potential damages from lost data and productivity. "It would've been a nightmare," he says.Strategies for protecting against damages caused by power failures aren't always fool-proof. Michael D. Bailey, a managing partner at Applied Cognetics LLC in Brooklyn, N.Y., says his software company uses the services of data centers around the world to ensure that applications it provides to customers are always running—even during blackouts. But a few weeks ago, one of them failed for about six hours when the power went out. "They offer a money-back guarantee, but in a situation like this, you don't want your money back, says Mr. Bailey, "you just want it to work." In hindsight, he says he should've asked the datacenter to prove it could deliver as promised. "The only way to know is to test it." Write to Sarah E. Needleman at sarah.needleman@wsj.com